Tuesday, August 1, 2017

While
Washington self-implodes over the health care issue, a brief analysis by Kurt Giesa at Oliver Wyman
Health summarizes the factors behind potential rate increases across the U.S.
health care insurance sector. Here is a brief look at the problem that
will face health care consumers in 2018.

The
analysis by Oliver Wyman suggests that up to two-thirds of the health insurance
rate increases in 2018 are due to two factors:

1.) The
uncertainty regarding continued funding of the cost-sharing reduction (CSR)
payments:

Obamacare's Cost-Sharing Reduction subsidies were
implemented to lower the out-of-pocket costs for Silver plans purchased
on the Health Insurance Marketplace with the size of the subsidy varying with
income level. For instance, for those households making between 100
percent and 250 percent of the Federal Poverty Level, CSR subsidies lower
coinsurance, lower copay amounts and lower the maximum amount that the affected
household will pay in out-of-pocket expenses by raising the actuarial value of
the plan.

Here
are some examples with varying household incomes (as a percentage of the
Federal Poverty Level or FPL):

-
100-200 percent of FPL, out-of-pocket limit won’t be more than $2,250 for an
individual or be more than $4,500 for a family.

-
200-250 percent of FPL, out-of-pocket limit won’t be more than $5,200 for an
individual or be more than $10,400 for a family.

More
than 250% percent of FPL, out-of-pocket limit won’t be more than $6,600 for an
individual or be more than $13,200 for a family.

2.) The
impact of the relaxation of the individual mandate and how it will impact
enrolment and risk pools:

- Make a
shared responsibility payment with your federal income tax return for the
months that you did not have coverage or an exemption.

Under
proposed changes, enforcement of the individual mandate could end, changing the
system that currently allows insurers to average out the higher-risk policy
holders.

Adjustments
in health care insurance premiums are calculated by actuaries on an annual
basis, taking into account the risk of expected and unexpected occurrences like
a severe influenza season and a higher than normal number of large claims.
For the 2018 year, actuaries are facing a perfect storm due to the
unknown issues associated with potential changes to the Affordable Care Act
under the Trump Administration. Modelling by the author suggests that
rate increases could well range between 28 and 40 percent with two-thirds of
those increases related to the uncertainty around CSR payments and the lack of
enforcement of the individual mandate as noted above.

Here is a
graphic showing how these two issues will contribute to the anticipated health
care insurance premium increases in 2018:

As you can
see, only 5 to 8 percent of the premium increases in 2018 are related to the
cost of care (i.e. the increase in medical costs), a small part of the overall
projected increase. Note, however, that the increase in medical costs is
roughly 2.5 to 4 times the official inflation rate. Non-enforcement of
the Obamacare individual mandate could contribute 9 percent to premium
increases and the lack of funding for Cost Sharing Reduction subsidies could
add between 11 and 20 percent to premiums. We are already seeing signs of
this:

1.) North Carolina - the state's largest insurer
is warning its Obamacare policy holders that it may have to hike rates by more
than 20 percent in 2018, the second year in a row that premiums have risen by
20 percent plus. It will "only" need to raise premiums by 8.8 percent if Cost
Sharing Reduction subsidies for low income enrolled are funded by Washington.

2.) Pennsylvania - the state's Insurance
Commissioner Teresa Miller warns that the five insurers that sell plans in the
state will have to raise premiums by 36.3 percent if the individual mandate is
repealed and Cost-Sharing Reduction subsidies are not paid. It will "only" need to raise premiums by 8.8 percent if Washington changes nothing.

I like that -
an increase of only 8.8 percent in our less than 2 percent inflation
world.

With Congress
fiddling while the health care system burns, this analysis clearly shows who is
going to pay for all of this health care system uncertainty - Main Street
Americans. Why should we be surprised?

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About Me

I have been an avid follower of the world's political and economic scene since the great gold rush of 1979 - 1980 when it seemed that the world's economic system was on the verge of collapse. I am most concerned about the mounting level of government debt and the lack of political will to solve the problem. Actions need to be taken sooner rather than later when demographic issues will make solutions far more difficult. As a geoscientist, I am also concerned about the world's energy future; as we reach peak cheap oil, we need to find viable long-term solutions to what will ultimately become a supply-demand imbalance.